Private Capital Mobilization for Climate Finance in an International Context

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A short, spoken-word summary from CSIS’s Gracelin Baskaran on her brief with Cy McGeady, “Private Capital Mobilization for Climate Finance in an International Context.”

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The Issue

Trillions of dollars of investment are required for emerging market and developing countries (EMDCs) to meet their development and related climate goals. However, EMDCs receive a fraction of the capital and investments required to scale up renewable energy and curb emissions. This shortfall is, in part, the result of various macro and micro impediments that limit the development and execution of projects, thereby preventing the deployment of capital. These barriers include sovereign credit risk, currency risk, legal and regulatory uncertainties, and sectoral and project-specific risks. Reforms are required to address these challenges. Given the high reliance on state-owned utilities, power sector reforms can be particularly sensitive. Addressing these interrelated barriers to investment requires a comprehensive, country-led approach to secure buy-in, support sectoral solvency, and boost capacity over the medium and long terms. International financial institutions (IFIs) are well placed to advance this work. They can leverage their technical expertise, financial capacity, and risk mitigation tools to alleviate various macro, sectoral, and project-related risks, thereby advancing development and climate objectives.

Introduction

The United Nations Framework Convention on Climate Change (UNFCCC) defines climate finance as “local, national or transnational financing—drawn from public, private and alternative sources of financing—that seeks to support mitigation and adaptation actions that will address climate change.” While the UNFCCC underscores the importance of balancing investments in mitigation and adaptation, this brief concentrates primarily on the former. Specifically, it zeroes in on the investments necessary to curtail greenhouse gas (GHG) emissions within the power sector, which is responsible for nearly 40 percent of GHG emissions on a global scale. This brief focuses on emerging market and developing countries (EMDCs).

Although global investment in renewable energy has exceeded $3 trillion between 2010 and 2019, achieving targets for emissions reduction requires more than a threefold increase in average annual investments in renewable energy, reaching approximately $1.3 trillion per year by 2030. EMDCs have received a much smaller share of renewable energy investments. For example, Africa received just 2.4 percent of global renewable energy investment between 2010 and 2020.

On a global scale, most investments have originated from the private sector, with only 14 percent of direct investments in renewable energy being publicly funded. In Africa, public financing assumes a more prominent role due to the challenges in attracting private capital, largely owing to political, legal, and economic risks.

However, countries are confronted with limited fiscal room to support public renewable energy financing. Global public debt has tripled since the mid-1970s, reaching 92 percent of GDP by the end of 2022. A growing number of countries find themselves in debt distress, unable to meet their debt obligations. Constrained public resources, combined with the magnitude of investment required, imply that a large share of future investments must come from the private sector, with a substantial portion targeted for deployment in EMDCs to align with global emissions reduction objectives. However, in many instances, a range of macroeconomic factors—such as weak GDP growth, poor sovereign credit ratings, and exchange rate volatility, as well as microeconomic challenges like regulatory constraints, counterparty credit quality, and transparency issues—impede project development and deter investment.

Addressing these challenges requires a coordinated approach. Officials at the 2023 Annual Meetings of the World Bank Group and the International Monetary Fund (IMF) in Marrakech, Morocco, supported a more holistic and integrated approach by the international financial institutions (IFIs)—in particular on climate change, which the institutions’ leaders describe as an existential threat. A comprehensive country-led approach is needed to address these barriers and reduce risks to attract private investment. Given each country’s unique characteristics and political economy, efforts must be tailored to the circumstances of individual countries, often at the local or subnational level.

Countries are confronted with limited fiscal room to support public renewable energy financing.

Unlocking Private Investment: Targeting Risk-Adjusted Returns

In financial terms, the attractiveness of an investment is largely a function of the risk-adjusted return it provides to investors. As risk levels rise, investors naturally seek higher nominal returns because increased risk is associated with a greater chance of financial losses. This highlights the importance of recognizing and effectively managing specific risks to enhance a project’s attractiveness to private sector investment.

Macroeconomic Risks

The long-term nature of most infrastructure investments highlights the importance of a country’s economic stability when seeking to attract private investment. Factors such as future output, price stability, and creditworthiness all play a role in shaping the overall risk profile and return that investors will require to engage in investments. Policymakers and those seeking to attract private capital in renewables and other infrastructure projects in EMDCs need to consider the extent to which these macroeconomic risks increase the return private investors demand to undertake certain investments. This brief focuses on two interrelated macroeconomic risks—sovereign credit risk and foreign exchange (FX) or currency risk—given their importance to investment decisions and recent proposals to mitigate them.

The first, sovereign credit risk, reflects the likelihood a country will default on its sovereign debt. Factors such as increased public debt levels and susceptibility to economic shocks, among others, can enhance sovereign credit risk and translate to higher financing costs. Debt sustainability concerns have increased for many EMDCs, even before the 2020 Covid-19 shock, and have further deteriorated in today’s environment, marked by higher interest rates. In the latest issue of Fiscal Monitor, the IMF sounds the alarm on fiscal management challenges in EMDCs due to mounting debt burdens, escalating interest costs, and substantial demands for climate adaptation and development. As of August 2023, the World Bank and IMF jointly classified 10 low-income countries as actively in debt distress and another 26 at high risk of debt distress. Between January and October 2022, Fitch, a credit rating agency, made 21 emerging markets downgrades across 11 sovereigns—the second-highest number of downgrades in history after the peak of the Covid-19 pandemic in 2020. The rating downgrades highlight the growing risk profile of many EMDCs, which undermines efforts to attract capital.

The second risk, FX or currency risk, arises from a mismatch between the investment’s funding currency—often in U.S. dollars or other hard currencies like the Japanese yen or euro—and the currency in which the generated revenues are denominated, typically the local currency. The blue line in Figure 1 shows the significant depreciation in emerging markets currency between 2010 and 2019, before the Covid-19 pandemic began, which could create a detrimental cycle, as borrowers face higher costs in meeting their foreign currency-denominated obligations. An examination of 41 emerging economies from 1999 to 2019 revealed that depreciation of domestic currency led to an increase in the external debt-to-GDP ratio, thereby reducing external debt sustainability. Consequently, some experts have called for international initiatives to address currency risk in EMDCs.

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Photo: CSIS

Sectoral and Project-Level Risks

Renewable energy projects are exposed to further sectoral and project-specific risks, which increase total project risk and reduce risk-adjusted returns. Risk is assessed from the perspectives of both a private project developer seeking to secure a final investment decision (FID) from private capital, and the private capital provider. Both evaluate key project pillars when assessing project risk, such as availability of land, skilled labor, technology, and offtakers. During the post-FID construction and operation phases, each of these factors introduces incremental risks that, if realized, would lower the expected financial returns.

  1. Renewable energy projects are land intensive, which brings project development into communities unfamiliar with or opposed to development. Even in the United States, poor land tenure laws and limited availability of viable land have resulted in rising renewables-related conflicts over the last decade. This phenomenon is even more profound in EMDCs. Securing legally and ethically robust land rights can be a complicated, costly, and time-intensive process, creating land risk and social acceptance risk for project developers.
  2. Likewise, project developers need to ensure suitable engineering, procurement, and construction (EPC) capabilities. This requires skilled workers who have received requisite vocational training. Such programs may be sparse in EMDCs, which makes securing sufficient skilled labor a challenge in certain markets and introduces labor risk.
  3. Cost-competitive procurement of the physical hardware needed (such as solar panels, inverter equipment, and wind turbines) may be complicated by supply chain constraints in some locations and domestic content mandates, generating technology risks.

The most critical hurdle for a project developer seeking an FID from private capital is the securing of a bankable offtake contract. Offtake refers to a firm contract between the project developer and another party who will buy the electricity the project produces. The contract details the volume of electricity purchased at a set price over a specified time frame. A bankable offtake contract secures the revenue stream on terms that justify the investment of private capital.

Offtake risk encompasses the potential threat to the assured revenue stipulated in the offtake contract and may exert significant influence on risk-adjusted returns. In developing countries, the offtaker is often a state-owned entity that has weak balance sheets and low creditworthiness. Consequently, there is a risk that it will default on contractual obligations with the investor. Well-known public utilities include PLN in Indonesia, Eskom in South Africa, and EVN in Vietnam—all of which have suffered various degrees of creditworthiness concerns in recent years. This risk profile increases overall project costs, which deters private investment.

Political and regulatory risks have been a growing challenge, given public utilities often fall under heavy political and regulatory scrutiny. Since the 1990s, 70 percent of developing countries have set up regulatory agencies and have adopted legislation to create modern regulatory frameworks for the power sector. The Global Electricity Regulatory Index (GERI) benchmarks a country’s regulatory system against best practices and its institutional design against the independent regulatory agency model. GERI is scored on a scale of 0 to 100, with 0 representing the lowest score. The global average of 82 non-Organization for Economic Cooperation and Development countries in sub-Saharan Africa, Asia, Europe, the Middle East, and Latin America was 59 percent, indicating room for improving power sector regulations. According to a 2023 World Bank study on enabling foreign direct investment in renewables, the utility sector, particularly renewables, faces a higher frequency of unfavorable regulatory changes and expropriation. The primary source of these negative developments is in relation to offtake contracts and, in particular, adverse changes to feed-in tariffs (FITs), a type of policy-supporting offtake.

The offtake contract frequently incorporates the element of curtailment risk, which refers to the possibility the grid operator will limit energy output from the renewable energy project to maintain the stability of the power system, also known as system balancing. When output is curtailed, it leads to a loss of revenue for the project owner, adversely affecting financial returns. In some instances, an offtake contract can be negotiated on a “take-or-pay” model, which guarantees payment to the generator, effectively shifting curtailment costs to the buyer. However, this approach introduces new challenges, such as the risk of regulatory changes, especially if the buyer is a public utility or if these elevated costs cause a decrease in procurement by policymakers.

Offtake contracts serve as the foundation of a project’s financial feasibility, and the complex risks inherent in public utility offtake arrangements pose a significant impediment to expanding private investments. Thus, any effective strategy aimed at increasing private investments in renewable energy projects in EMDCs must prioritize at its core the development of robust offtake solutions.

De-risking Climate Finance

Given the important role of private capital in fulfilling overall investment requirements, policymakers have worked to identify specific barriers to investment and develop mechanisms to de-risk investments. The World Resources Institute defines de-risking as the process of “reallocating, sharing or reducing the existing or potential risks associated with climate investment” in order to attract capital from commercial and institutional investors for previously unbankable projects. While the idea of risk management to reduce a project’s overall cost is not novel, there is now a deeper understanding of the risks that renewable energy project developers face and the tools needed to mitigate these risks.

At the national level, a country’s broader macroeconomic and political outlook shapes a project’s attractiveness to international private capital. At the project level, it is important to identify risks that occur during project preparation and construction, including land, labor, and technological risks. Finally, commercial considerations such as offtake and curtailment risk may affect project viability.

Mitigating Macroeconomic Risk

Macroeconomic risks significantly weigh on private infrastructure investment, particularly in EMDCs. The most effective and sustainable approach to mitigating macroeconomic risk is implementing sound policies. While country authorities are responsible for delivering such policies, IFIs can support country efforts with advice and technical assistance, donor coordination, and financial resources to support reforms and manage external shocks.

Financing in local currencies. In the context of climate finance and considering the magnitude of investment required in EMDCs in the coming decades, developing sustainable financing sources is a priority. Given that currency risk emerges when the funding currency of a project differs from the currency in which its revenues are denominated, the most straightforward approach for managing this risk is by financing a project in the same currency as its eventual revenues. Local currency resources may be generated through domestic resource mobilization, including tax revenues and local currency borrowing from banks, nonbank financial institutions, and domestic capital markets.

Leveraging domestic capital markets. Mobilizing local currency financing is particularly important for industrializing emerging economies such as Brazil, India, Indonesia, Mexico, and South Africa, where absolute financing needs are substantial, as is the potential of domestic capital markets. In this context, IFIs and other donors can support the development of these markets by working with country authorities to promote sound macroeconomic policies, boost transparency, and improve institutional quality, which will in turn attract foreign capital and facilitate the development of sustainable financing sources for renewable energy projects.

Utilizing guarantees. Both public and private entities offer de-risking instruments that can mitigate sovereign and sub-sovereign credit risk by providing guarantees under specific conditions in the event of a default. Multilateral development banks (MDBs) and national development finance institutions (DFIs) have deployed guarantees to encourage investment in renewable energy projects and enhance the creditworthiness of state-owned enterprises, thereby facilitating the mobilization of additional climate finance.

It is important to note that a guarantee functions by transferring risk rather than by completely eliminating it. In the case of the aforementioned proposals, currency risk is transferred to the intermediary entity (such as MDBs), which becomes responsible for covering costs in the event of unfavorable currency fluctuations. Estimating these potential costs poses a challenge due to the uncertainty surrounding the future exchange rates, particularly when looking 10 or more years ahead.

Providing subsidies. Similar to guarantees, direct subsidies can lower the cost of capital for the borrowers and increase risk-adjusted returns for investors. They may be contingent upon the implementation of essential reforms. However, resources for subsidies are limited. While larger industrializing emerging economies may find local currency financing feasible through their domestic capital markets, relatively smaller and poorer economies may not have access to local currency instruments. For these countries, the mobilization of sufficient climate finance will require larger, sustained subsidies to manage, inter alia, currency risk. Many of these lower- and lower-middle-income countries will require added concessionality.

Exploring innovative nonfinancial and financial tools. Various innovative approaches aim to reduce sovereign credit and other macro risks. These include incorporating the benefits of climate-focused investments in debt sustainability analyses, inclusion of state-contingent or climate-resilient debt clauses, and debt buybacks and debt-for-policy swaps to increase fiscal space for investments in development, climate, and nature-positive projects. These innovations incentivize country authorities to undertake reforms that attract greater levels of private investment.

Ultimately, a country’s macroeconomic conditions and ability to meet financial obligations will directly influence risk assessments. In many of the poorest countries, especially those already heavily indebted and/or at high risk for debt distress, private investors will likely hesitate to invest without additional incentives. In such instances, donor support is even more critical, highlighting the instrumental role of IFIs in stretching these resources to maximize available financing, particularly for low-income countries.

Mitigating Offtake Risk at the Sectoral Level

Mobilizing private capital requires a well-prepared project pipeline of ready-to-build projects within an electric power sector with growth potential. Offtake opportunities define the scope of commercial possibilities for project developers and, by extension, determine the scale of private capital that can be deployed. Therefore, the expansion and enhancement of high-quality offtake opportunities should be a key focus of international efforts to scale up private capital deployment.

Broadly, there are three ways to expand attractive offtake opportunities: FITs, auctions, and private bilateral offtake. Each of these can support transparent, competitive, and stable offtake regimes, which improve certainty, mitigate offtake risk, and improve private sector appetite by increasing risk-adjusted returns. Critically, these policies do not eliminate risk and may introduce new challenges into the sector if they are not well managed within sector-specific challenges, such as system balancing, transmission, and financial solvency.

Mobilizing private capital requires a well-prepared project pipeline of ready-to-build projects within an electric power sector with growth potential.

Feed-in tariffs (FITs) offer a standardized offtake contract with a long-term fixed-price and guaranteed grid access. Importantly, regulatory mandate sets the price, typically at a level above market rates and high enough to create an attractive return profile for project developers. A key challenge for policymakers lies in the price-setting function: if the price is set too low, the policy might fail to attract project developers, but if it is set too high, developers could earn excessive returns at the expense of the offtaker, typically a public utility. Given falling technology costs, well-designed price models are critical. Excessive returns for project developers often lead to adverse regulatory responses, a risk highlighted by the World Bank’s finding that FITs are the main source of investor-state disputes in the renewable energy sector.

Auctions are another way policy can create offtake opportunities for private project developers and private capital. Like FITs, this policy mechanism grants a long-term offtake contract with a fixed price to projects. Auctions provide a major advantage to policymakers because unlike FITs, which administratively set prices, they rely on a competitive market mechanism to set prices. In a global market characterized by declining costs for renewable energy technologies, auctions have seen widespread adoption as countries seek to replicate the pricing success observed in other markets.

Well-designed auctions can establish transparent and progressively growing offtake opportunities for private project developers and private capital. However, it is important to note that they do not eliminate all risks. In most cases, public utilities or state-backed entities are the offtake counterparty, and the creditworthiness of these offtake partners remains a risk. Furthermore, auction competition can drive project developers to submit bids with narrow profit margins, exposing them to losses if labor, land, or other costs surpass initial estimates. Such outcomes could potentially deter future private investments.

Private bilateral offtake presents an alternative that bypasses risks created by public utility offtake. In this approach, a project developer secures an offtake contract with a private buyer of electricity, often a large commercial or industrial entity with a substantial electric load. These contracts, often referred to as power purchase agreements (PPAs), are common in the United States and Europe, where competitively organized electric power markets create the enabling commercial environment. If the private buyer has strong credit, such as a global multinational corporation, this form of offtake can improve risk-adjusted returns for the project developer. Importantly, this model harnesses the buying power of the commercial and industrial sectors, which represent approximately two-thirds of the world’s electricity consumption. Large corporate buyers can effectively create a market for renewable power generation but possibly at the expense of the incumbent power provider.

In most cases, the transaction occurs through a publicly owned or regulated electric grid since the generation asset and load asset are not physically colocated. As a result, this model requires an enabling regulatory environment, and projects remain exposed to potential regulatory changes.

Constraints on Sectoral Policymaking

Policies aimed at expanding offtake opportunities are limited by the need to balance the electric system, the capacity of the transmission system, and the overall financial solvency of the sector. These constraints dictate that each of the offtake expansion policies discussed entails a financial cost, either in the form of direct subsidy, tariff and rate reforms that affect the financial health of the public utility, or the cost of stranded assets. The question for policymakers is: who is best positioned to bear these costs?

The system balancing constraint requires changes in electric system dispatch operations when renewables are interconnected. To induce private investment under an FIT or auction model, the renewable resources typically receive firm offtake, meaning they receive priority over incumbent generation assets, which must generate less output to “create space” and ensure electricity supply and demand remain balanced on the grid. This result is positive for reducing GHG emissions given it generally displaces fossil fuel–fired thermal plant emissions (such as from coal or gas). It can also result in a lower energy cost for the system if the rate paid to renewable generators is lower than the rate paid to thermal plants.

However, the displaced incumbent generation assets experience reduced utilization (lowered capacity factors) and decreased revenue. Consequently, the interconnection of new renewable resources will likely create stranded assets elsewhere in the system. If the public utility owns the asset, these losses can have repercussions on the public sector’s creditworthiness and limit capacity for further investment.

When displaced incumbent assets are privately owned, a distinct set of challenges can emerge. First, private interests may represent a significant political interest group with an incentive to impede the adoption of renewable energy deployment. Second, despite reduced utilization, incumbent generation remains a requirement for system balancing. New policies may be required to maintain spare dispatchable capacity at sufficient volume. U.S. electric power markets have developed market mechanisms, such as capacity markets, reserves markets, and resource must-run (RMR) agreements, to address this problem, which is particularly acute in EMDCs with strong electricity demand growth. Regardless of the chosen policy mechanism, these solutions entail new nonenergy costs that the system must recover if financial solvency is to be maintained.

Transmission capacity is another physical constraint that can limit the deployment of renewable energy sources. The geographic siting constraints and intermittent nature of renewables necessitate increased transmission requirements relative to the generation assets they displace. Over time, policies aimed at expanding interconnection opportunities for wind and solar projects will progressively absorb all spare transmission system capacity. The outcome is well demonstrated in the United States, where transmission has emerged as the primary constraint on renewable energy deployment.

Failure to expand the transmission system will result in grid congestion, forcing the curtailment of wind and solar resources to uphold system integrity. Curtailment, in turn, results in revenue loss for asset owners. As transmission systems reach their limit, curtailment risk will emerge as a growing concern and deterrent for private developers and private capital. Expanding the transmission system is a formidable task, primarily due to the substantial costs involved, which must be recuperated to maintain financial solvency.

Ultimately, the overall financial solvency of the system stands as the primary sectoral constraint limiting offtake opportunities. FITs carry subsidy costs, while auctions can bring in new generation projects but face binding system balancing and transmission constraints. Bilateral offtake shifts electric load and revenue associated with that load volume away from the public utility. As renewable energy sources scale up, the largest and most creditworthy electric loads will naturally be poached from the utility into private bilateral contracts. If this transition is not accompanied by well-designed rate and tariff reform, this model could erode the financial position of the public utility.

The relationship between the overall system expenses and the price of electricity for end users is a complex policy challenge. In an ideal scenario, all system costs should be fully recovered through rates. However, the cost of electricity is politically sensitive, and many countries subsidize electricity costs to support economic activity and help low-income households. Regardless of the distinct political or policy considerations at play, there tends to be structural disparity between system costs and revenue, often resulting in the accumulation of debts on the balance sheets of public utilities in EMDCs. The state either implicitly or explicitly shoulders these debts, thereby establishing a detrimental cycle that intertwines the country’s macroeconomic status with sector-specific difficulties. This feedback relationship operates in a bidirectional manner: macroeconomic conditions influence the capacity of both public and private sector utilities to secure the required funding for investments in renewables or transmission.

Failure to expand the transmission system will result in grid congestion, forcing the curtailment of wind and solar resources to uphold system integrity.

Poor whole-of-system solvency is a major reason for limited or risk-laden offtake opportunities and is a key driver of regulatory and political risks that materialize at the project level. Addressing upstream sectoral constraints is the long-term solution to scaling the pipeline of bankable projects and deployment of private capital into EMDCs for renewable power generation.

Project-Level Risk Mitigants

In the downstream phase, the project pipeline hinges on the commercial and technical maturity of project developers, the availability of labor and land, the social license to operate, and permitting processes. Assistance in project preparation can effectively mitigate numerous project risks and enhance risk-adjusted returns.

India has achieved success with a solar parks model, in which a public utility or state agency identifies suitable sites and secures land access, subsequently facilitating an auction for project development at the designated site. This model has the capacity to eliminate complex land and permitting issues, and if the overseeing authority also assesses grid capacity during the site selection process, it can substantially diminish curtailment risk and associated costs.

In many EMDCs, the renewable energy sector is still nascent, and the lack of expertise and institutional capacity is a limitation. Official institutions are well positioned to bridge this gap and lay the groundwork for private capital deployment. A successful illustration of this model is the World Bank’s Global Infrastructure Facility, which provides both financial capital and advisory services to countries seeking to enhance their capacity. These advisory services share technical guidance on project selection, auction design, contract standardization, and regulatory best practices—all of which improve a country’s ability to institute policies that support renewable energy deployment. The World Bank’s Sustainable Renewables Risk Mitigation Initiative (SRMI) also works with countries to accelerate the deployment of renewables by combining technical assistance, public investments, and risk mitigation instruments.

De-risking efforts undertaken during the project preparation and construction phase do not entirely eliminate commercial risks, such as regulatory reversals or political instability. In this context, project-level support can take the form of political risk insurance offered by private political risk insurance providers, national export credit agencies, DFIs, or multilateral agencies. In particular, the World Bank’s Multilateral Investment Guarantee Agency (MIGA), provides both political risk insurance and credit enhancements to promote cross-border investment in developing countries. MIGA provides “an umbrella of deterrence against government actions that could disrupt projects and assist in the resolution of disputes between investors and governments.” Given the political sensitivities surrounding renewable energy deployment, the halo effect—whereby MIGA can enlist the support of sovereign lending arms (the World Bank Group’s International Bank for Reconstruction and Development for middle-income and creditworthy low-income countries and the International Development Association for the poorest countries) to mediate in the event of potential claims—is a key mechanism for de-risking. In the context of broader MDB and World Bank reform, experts have called on MIGA to significantly expand its portfolio with a focus on low-income countries, contingent on additional donor support. The U.S. International Development Finance Corporation (DFC) has also provided loan guarantees to lenders to solar power projects in India, Latin America, and the Caribbean. Guarantees from both institutions shift risk from a private party to the official institution, thereby lowering private sector risk and increasing the risk-adjusted return for private capital. While progress has been made in developing models to address risk at the project level, more funding is needed to scale these successful programs and models.

Conclusion

Mobilizing private capital for renewable energy investments in EMDCs presents a complex challenge due to the diverse conditions that must be satisfied to meet the risk-return requirements of private investors. This requires improving macroeconomic stability, creating an enabling sectoral environment, and addressing project-specific risks.

On the macroeconomic front, there is no substitute for sound policies. In considering the significant capital requirements for meeting net-zero commitments and adapting to a warmer and more shock-prone world, policymakers will have to prioritize sustainable financing. Advocating for sound policies is not a replacement for financial assistance, but such assistance should advance sustainability, including through conditionality in IMF programs and MDB budget support. Greater reliance on local currency financing, supported by domestic capital markets development, will reduce foreign exchange risk. Guarantees and other de facto subsidies can reduce risk and increase the risk-adjusted return required to attract private investment. For the poorest countries, support from government donors and private philanthropy will be essential to meet development and climate-related goals.

In terms of sectoral policies, expansion of the on-the-ground project pipeline requires solutions aimed at addressing sectoral and related political economy considerations. Therefore, country authorities and multilateral institutions should direct their engagement and investments toward policies and projects that enhance sectoral solvency and capacity in the medium and long terms. Offtake may be expanded through public utility policies like auctions or FITs, or through sectoral reforms that create more opportunities for bilateral offtake. It is important to note these policies impose direct costs on the public utility or state and generate substantial implicit costs within the system, which must be recovered to maintain the overall financial solvency of the entire system.

Cy McGeady is a fellow in the Energy Security and Climate Change Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Gracelin Baskaran is the research director and senior fellow for the Energy Security and Climate Change Program at CSIS.

The authors thank Stephanie Segal for research input and advice and for comments on earlier drafts of this brief and Joseph Majkut for project support and conception.

This brief is made possible by support from the Hewlett Foundation.

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Cy McGeady
Fellow, Energy Security and Climate Change Program
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5Baskaran
Director, Project on Critical Minerals Security and Senior Fellow, Energy Security and Climate Change Program